Eggiman v. Mid-Century Ins. Co.

• Decision Date: 17 May 1995
• Docket Number: MID-CENTURY
• Citation: 134 Or.App. 381,895 P.2d 333
• Parties: Linda EGGIMAN, Appellant, v.INSURANCE COMPANY, a foreign corporation, Respondent. 9304-02123; CA A81855.
• Court: Oregon Court of Appeals

Page 333

895 P.2d 333

134 Or.App. 381

Linda EGGIMAN, Appellant, v. MID-CENTURY INSURANCE COMPANY, a foreign corporation, Respondent.

9304-02123; CA A81855.

Court of Appeals of Oregon.

Argued and Submitted June 16, 1994.

Decided May 17, 1995.

Timothy W. Grabe, Portland, argued the cause and filed the brief for appellant.

Barbara L. Johnston, Hillsboro, argued the cause for respondent. With her on the brief was Larry A. Brisbee.

Before DEITS, P.J., and RIGGS and HASELTON, JJ.

HASELTON, Judge.

Plaintiff Eggiman appeals from a summary judgment for defendant Mid-Century Insurance Co. on her action for breach of contract. She alleged that defendant breached its obligation under an insurance policy, which provided for personal injury protection (PIP) benefits, by refusing to preauthorize physical rehabilitation treatment after she sustained injuries in an automobile accident. We affirm.

On November 3, 1990, plaintiff suffered a soft tissue back injury in an automobile accident. ¹ At that time, she was insured under an automobile liability policy issued by defendant, which provided for statutorily mandated PIP benefits. ORS 742.520(1).

Following the accident, Keith Johns, a chiropractor, treated plaintiff's back injuries. On April 9, 1991, Johns wrote to defendant recommending that plaintiff participate in a "physical rehabilitation and educational program." Such programs combine supervised aerobic and strength exercises with counseling. ² On May 16, 1991, defendant responded:

"Physical Therapy is covered under the policy. However, 'rehabilitation', per se, is not.

"Our primary goal and responsibility to the Insured, is to provide benefits to place them back to the condition they were in prior to the accident.

"Rehabilitation goes beyond this process. Although I agree it is to the benefit of the patient to strengthen weak areas to avoid further injuries, the purpose of the coverage is, as was stated above, to place the patient back to the condition they were in just prior to the accident." ³

Thereafter, a dispute arose over defendant's refusal to pay. On December 3, 1991, defendant wrote to Johns and plaintiff informing them that it would not pay for most of Johns' services. Three days later, plaintiff demanded arbitration, pursuant to ORS 742.520(6), ⁴ concerning defendant's refusal to pay, but not its refusal to preauthorize rehabilitation. Defendant eventually agreed to pay all of Johns' submitted fees, and plaintiff canceled arbitration in March 1992.

In January 1992, approximately nine months after Johns requested preauthorization, plaintiff enrolled in a physical rehabilitation program at Portland Rehabilitation and Sports Medicine, a rehabilitation program that accepts patients without insurance preauthorization. Thereafter, notwithstanding its refusal to preauthorize physical rehabilitation defendant paid all of plaintiff's submitted costs for rehabilitation at Portland Rehabilitation.

In April 1993, plaintiff brought this action against defendant for breach of contract. She alleged that defendant breached its insurance contract by failing to preauthorize rehabilitation. Plaintiff asserted that defendant's failure to timely preauthorize rehabilitation prevented her from recovering fully and left her 30 percent permanently disabled.

Defendant moved for summary judgment, arguing that it did not breach its insurance contract and that, in any event, ORS 742.520(6) required plaintiff to arbitrate her claim against defendant. The trial court granted defendant's motion on the ground that plaintiff should have arbitrated her claim. ⁵

Plaintiff contends that the trial court erred in granting summary judgment for defendant. In particular, plaintiff argues that: (1) genuine issues of material fact exist as to whether defendant breached its contract to provide PIP benefits; and (2) as a matter of law, she was not required to arbitrate her claim. The success of plaintiff's arguments depends ultimately on her assertion that, under McKenzie v. Pacific Health & Life Ins. Co., 118 Or.App. 377, 847 P.2d 879 (1993), defendant had a duty to determine, in good faith, whether her insurance policy covered physical rehabilitation, and to refrain from arbitrarily refusing to preauthorize that treatment. We conclude that defendant had such a duty, but that the determination as to whether defendant breached that duty is subject to mandatory arbitration under ORS 742.520(6).

We note, at the outset, that the summary judgment record does not include plaintiff's actual PIP policy with defendant. In moving for summary judgment, defendant did not attach excerpts of the policy, but, instead, assumed that the pertinent policy provisions conformed to, and did not exceed, the requirements of the PIP statutes, ORS 742.520 et seq. Plaintiff apparently made the same assumption, because she did not submit excerpts of the policy in opposing summary judgment; nor did plaintiff ever argue, either before the trial court or on appeal, that defendant's failure to do so precluded summary judgment. Thus, any ostensible deficiency in defendant's summary judgment submission is not assigned as error and does not compel reversal. In reviewing the summary judgment, we shall assume that the policy terms pertinent to the issues on appeal parallel the statutory requirements.

Turning to the merits, we first consider plaintiff's argument that, under McKenzie, defendant had a duty to refrain from arbitrarily refusing to preauthorize covered treatments. In McKenzie, the plaintiff was insured under a health insurance policy, which expressly excluded coverage for expenses related to arthritis. The plaintiff subsequently developed "aseptic necrosis" in his hips, a condition that is not arthritis, but is "dead, infected hip bones." The plaintiff's doctor asked the defendant insurer to preauthorize hip replacement surgery, explaining that the condition was not arthritis. When the defendant nevertheless refused to preauthorize the surgery, the plaintiff sued, alleging, inter alia, that the defendant's refusal breached the implied covenant of good faith and fair dealing. The trial court struck the plaintiff's claim for breach of the duty of good faith, and we reversed:

"[S]o long as it is not inconsistent with the express terms of the contract, the duty of good faith is a contractual term that is implied by law into every contract * * *. See Sheets v. Knight, 308 Or 220, 233 n 12, 779 P2d 1000 (1989). We conclude that, within defendant's obligation to pay all covered claims was the duty to determine, in good faith, whether a claim is covered, and to refrain from arbitrarily refusing to preauthorize medical treatment." 118 Or.App. at 381, 847 P.2d 879 (emphasis supplied).

Defendant argues that McKenzie is distinguishable in several material respects. Defendant contends that McKenzie holds that an insurer has a duty to preauthorize treatments in good faith only when it has an express contractual duty to preauthorize treatments. Because the PIP statutes do not refer to preauthorization, see, infra, 134 Or.App. at 387, 895 P.2d at 336, defendant reasons that there could be no good faith duty to preauthorize. As further support for its position, defendant cites Uptown Heights Associates v. Seafirst Corp., 127 Or.App. 355, 873 P.2d 438 (1994), aff'd in part, rev'd in part 320 Or. 638, 891 P.2d 639 (1995).

Defendant misreads both McKenzie and Uptown Heights. In McKenzie, there is no suggestion that the duty to preauthorize in good faith arose from a duty to preauthorize expressly imposed by the health insurance policy at issue there. Indeed, our review of the briefs and oral arguments in McKenzie discloses no mention of such an express contractual duty. Rather, the duty to refrain from arbitrarily refusing to preauthorize treatments in McKenzie stems from defendant's general "obligation to pay all covered claims." 118 Or.App. at 381, 847 P.2d 879.

Similarly, Uptown Heights does not hold that an implied duty of good faith must precisely refer to a specific, express contractual duty. Instead, Uptown Heights validates the obverse proposition, i.e., that a duty of good faith will not be implied and enforced in contravention of a parties' express contractual rights (there, an express contractual entitlement to foreclose). 127 Or.App. at 360-61, 873 P.2d 438.

McKenzie 's flexible and sensible analysis applies equally here. As in McKenzie, a duty to preauthorize in good faith is properly implied because, absent such a duty, a PIP insurer could avoid its contractual obligations altogether by arbitrarily withholding preauthorization. Without preauthorization--without assurance that the insurer will pay the cost of treatment--medical providers may refuse to provide the treatment, or PIP insureds may feel compelled not to obtain covered treatment, frustrating contractual expectations. ⁶

For related reasons, defendant's arguments pertaining to the particular requirements of the PIP statutes also fail. Defendant argues that, under the PIP statutes, an insurer's only...